On a podcast interview for Radio CEO I said that one of the greatest misconceptions in the software development world is that off-shoring will save money. In the media world of short and pithy statements I couldn’t fully elaborate or discuss the nuances so I’d like to elaborate here.

There are two main reasons why off-shoring development of websites, mobile apps, custom software, and related services does not save money:

1) The increase of Fortune 500 firms (e.g., Oracle, IBM, Microsoft) opening offices in places where people off-shore work (particularly India) has created competition for talent that has pushed salaries higher. All of the best talent is employed and making good money even in U.S. terms. That leaves inexperienced and low quality developers for the firms that are still offering cheap labor. Now this is not true in all countries. For example, there isn’t a big rush for Fortune 500 firms to open offices and hire developers in Pakistan or the Ukraine, but you will have risks such as political uncertainty and lack of legal protections. As the adage goes: You get what you pay for.

2) Project management costs are significantly higher on an off-shore project.

a. There is little opportunity to enmesh the developers in the objectives of the software, which normally results in a client response such as “yeah, this is what I asked for, but it doesn’t do what I need.”

b. Requirement specifications tend to be more fixed in an off-shore project and can’t evolve the way they need to, from close contact among team members. As a result water cooler conversation “revelations” aren’t made.

c. Time differences are brutal. Any team member who is repeatedly doing a 1am call to discuss project nuances will not be at peak performance.

d. Communication is a challenge. Putting aside accents, which may not be terrible even over the phone, I’ve discovered colloquialisms are the biggest barriers to communication among people who share the same language. Something as simple as, “Let’s get this project ramped up,” may leave the off-shore team wondering, “Why does the project need a ramp?” Or, “Let’s take baby steps,” may lead to a horrified, “Take what?!?!” I didn’t realize how often we use colloquialisms until regular conversations with foreigners required frequent clarification. For example, “the client is really pissed right now,” means the client is angry to an American. To someone in India and some other countries it means the client is really drunk.

e. You don’t really know who is working on your team. Recently I spoke with the CEO of an off-shore development firm who said when he was starting his firm from the U.S. the first two organizations he hired from his home country failed to deliver. He finally had to bring on a trusted friend as a partner who was willing to go live in the country to manage the team.

All the problems with the project management side of development alone will result in higher costs for your software, website, or mobile app project. Plus, you’ll be very frustrated.

Understanding all of this can sometimes be difficult for executives because the short-term benefits appear to be high. The CEO may see that the monthly software development costs were reduced by half. The person responsible for off-shoring the work may get a bonus based on the cost savings. Then the final product is delivered and either needs to be fixed or rebuilt from scratch causing all of the original savings to evaporate. Hopefully the person responsible has hit the road. (“Excuse me, please, what do you mean ‘hit the road.’”)

[See an upcoming blog post for how select firms can make off-shoring work.]